CSR Funds Not Spent Within Prescribed Time: MCA Penalises Pace Digitek u/s 135(7) of Companies Act

The Ministry of Corporate Affairs ( MCA ) has imposed penalties on a company and its director, after the company failed to spend its mandatory Corporate SocialResponsibility (CSR) obligations within the prescribed timelines and also did not transfer the unspent CSR amounts to a Schedule VII fund within six months from the end of the relevant financial years.

The proceedings were initiated based on a suo-motu application filed by the company, Pace Digitek Limited on 08.01.2025, wherein it admitted non-compliance for multiple financial years and sought adjudication under Section 454 of the Act.

The company disclosed that it had CSR obligations of ₹7,39,697 for FY 2020-21 and ₹8,95,598 for FY 2021-22, both of which remained unspent within the statutory period.

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The ROC noted that “the company had failed to spend the CSR obligations within the prescribed timelines and had also not transferred the unspent amounts into the fund specified in Schedule VII within six months of the end of the financial year,” attracting penalty under Section 135(7).

In the adjudication proceedings, the company and its officer in default submitted replies detailing CSR obligations, spending, and shortfalls for FYs 2020-21 to 2023-24. During the hearing, the ROC directed the authorised representative to provide complete computation of CSR liability and corresponding expenditure for each financial year.

The company later submitted a certified statement confirming the CSR obligations and spending for four financial years, including the fact that excess CSR spending of ₹13,65,000 in FY 2022-23 had been legally set off against FY 2023-24 obligations, resulting in no violation for FY 2022-23.

However, for FY 2023-24, the company still had a shortfall of ₹10,28,000, which was neither spent nor transferred within the permissible period.

The ROC held that the company was again in violation of Section 135(5) for FY 2023-24, making it liable for penalty for three financial years, 2020-21, 2021-22, and 2023-24.

As per directions issued, the company subsequently transferred the total unspent CSR amount of ₹26,63,295 (representing the shortfall of three years) to the Prime Minister’s National Relief Fund on 04.09.2025 and submitted proof of transfer along with its reply.

However, the ROC clarified that subsequent compliance does not absolve liability for the statutory violation. The order also recorded that Pace Digitek Limited is not a “small company” under Section 2(85), and hence the benefit of reduced penalties under Section 446B could not be extended.

The adjudicating officer observed that “the violation is being adjudicated for four financial years viz. 2020-21, 2021-22, 2022-23 and 2023-24,” noting that the present order pertains specifically to FY 2021-22 on the e-Adjudication module while other years are covered under separate adjudication orders.

Under Section 135(7), the ROC levied a penalty of ₹17,91,196 on Pace Digitek Limited, being twice the unspent amount required to be transferred and ₹89,560 on its officer in default, being one-tenth of the unspent CSR requirement, subject to the statutory cap.

The officer was directed to pay the penalty out of his personal income and both noticees were instructed to pay the penalty within 90 days through the MCA e-Adjudication portal.

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